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Different Volume Profile Shapes

Let explore various Different Volume Profile Shapes and what they mean.

Volume Profile Shapes

  • There are many shapes a Volume Profile histogram can print and many different stories it can tell.
  • However, the shapes and the stories behind them tend to repeat themselves, and in the end, it comes down to just a few basic shapes the Volume Profile can take:
    1. D-Shaped Profile
    2. P-Shaped Profile
    3. b-Shaped Profile
    4. Thin Profile

D-Shaped Profile

  • The most common and well known is the D-profile. Its shape is similar to a letter “D”.
  • It is formed when the market is balanced.
  • This means that buyers and sellers found temporary balance and neither of them is more aggressive than the other.
  • The price is in a rotation or in a sideways price channel.
  • The D-shaped profile is usually a sign of institutions accumulating their volumes i.e. getting into large positions.

There are 3 significant places to be aware of.

  • High of the D – profile
  • Low of the D – profile
  • POC (= a place with the heaviest volumes).
    Usually close to the middle of the D-shaped profile.

D-Shaped-Profile-01

Sideways price action – 16 Dec 22 9:15 am ~ 20 Dec 22 03:25 pm

D-Shaped-Profile-02

Volume Profile applied on Sideways

D-Shaped-Profile-03

Volume Profile looks D – Shaped

D-Shaped-Profile-04

High and Low of the D – Profile

As above image shows Short trades at High of the D volume and Long trades at low of the D.

P-Shaped Profile

  • Its shape is similar to a letter “P”.
  • It is formed when there are aggressive buyers and weak sellers.
  • If you look at price chart you will most likely see bull candles (aggressive buyers) and then a rotation at the day’s high (weak sellers).
  • P-profiles can usually be seen:
    1. When the market is in an uptrend.
    2. At the possible end to a downtrend. (this is not a hard rule though)

P-Shaped-Profile

P Shaped Profile

Most significant areas within P-profile are:

  1. POC: good support area if the price goes up the next day(s) and then returns to this area again (pullback).
    • The price doesn’t have to return to this area immediately the next day.
    • It can take several days before the price comes back to this POC.
  2. Volume cluster in the thin area of the profile: in this place, the aggression of buyers was most significant – they put heavy volumes in the market to move the price higher.
    • If the price returns there as shown in above image, it is highly probable that these aggressive buyers will become aggressive again, they will defend their positions, and they will push the price higher again.

b-Shaped Profile

  • Its shape is similar to a small letter “b”. (The exact opposite of P-profile.)
  • It is formed when there are aggressive sellers and weak buyers.
  • If you look at price action chart you will most likely see bear candles (aggressive sellers) and then a rotation at the day’s low (weak buyers).
  • b-profiles can usually be seen:
    1. When the market is in a downtrend.
    2. At the possible end of an uptrend. (this is not a hard rule though).

b-Shaped-Profile-01

b-Shaped Profile

b-Shaped-Profile-02

b-Shaped Profile: Pullback to POC

Most significant areas within b-profile are:

  1. POC: good resistance area if the market goes down the next day(s) and then returns to this area again (pullback).
    • The price doesn’t have to return to this area immediately the next day.
    • It can take several days before the price comes back to this POC.
  2. Volume cluster in the thin area of the profile: in this place, the aggression of sellers was most significant – they put heavy volumes in the market to move the price lower.
    • If the price returns as shown in above image there it is highly probable that these aggressive sellers will become aggressive again, they will defend their positions, and they will push the price lower again.

Thin Profile

  • Thin profiles appear when there is a strong uptrend or a strong downtrend.
  • Thin profiles are thin because one side of the market is very aggressive and moves the price very quickly in one direction.
  • There is not much time for volume accumulation because the market is moving too fast.
  • For this reason, there are usually few places with smaller volume clusters but without any major volume accumulation area.
  • One of our trading strategies is based on trading the volume clusters.
    Will talk more about it later in this course.
    1. Significant volume clusters in the uptrend (in a thin profile) are good support zones.
    2. Significant volume clusters in the downtrend (in thin profile) are good resistance zones.

Thin-Profile

Thin Profile: Volume Clusters

Most significant places in a Thin profile are places where the price stopped moving for a while, and the Volume Profile made “volume clusters.“

  • In these volume clusters, aggressive market participants were adding to their trading positions to participate even more in the trending market.
  • If the price returns to these S/R zones (to the volume clusters), these aggressive participants will probably become aggressive again and add some more volumes to the market to defend their positions.

This helps to move the price in the direction of the trend again.

Volume Profile Shapes – Key Points

  • Not all the Volume Profile histogram shapes that you encounter will fit exactly in the description of these four basic ones showed here. Most of the time you won’t be working with the “perfectly shaped” profiles.
  • However, if you use your imagination a bit, then in most cases you should be able to fit every profile shape into one of these 4 basic shapes.
  • The first step to learning to trade with the Volume Profile is to start looking for those 4 types of profiles and trying to fit every profile you see into one of the 4 categories.
  • Based on this, you should try to figure out where volume-based support/resistances are.
  • Fastest and easiest way is to start trading volume profile with the default Daily profiles (1 day = 1 profile).
  • However, you can look for those 4 basic shapes on every profile regardless of the time-frame. This could be Weekly profiles, 4-hour profiles, or the Flexible Volume Profile.

Fuck you all